Bank struggling to control economy, Mersey expert warns

Jul 11 2008 by Tony McDonough, Liverpool Daily Post

ECONOMIC commentators in Merseyside have welcomed the decision by Bank of England policymakers to hold interest rates at 5%.

However, one expert told LDP Business he believed the Monetary Policy Committee’s ability to influence the UK economy through the management of base rates was becoming “increasingly constrained”.

Interest rates were kept on hold for the third month in a row today as the MPC continued its fight to keep inflation under control.

The Bank held borrowing costs despite mounting signs of economic gloom, prompting fears over a potential recession.

The “no change” call gives little respite to homeowners and borrowers already faced with soaring petrol, food and household energy bills.

But the widely-expected decision comes as the Bank’s nine-strong MPC grapples with inflation well above its 2% target at 3.3% - and set to rise further still due to factors such as surging oil prices.

The MPC is facing a delicate balancing act between taming inflation and avoiding a sharp slowdown. Business leaders at the British Chambers of Commerce warned of a “serious risk” of recession this week.

The UK has also been hit by a fresh blizzard of poor news from the housing market - with builders axing around 5,000 jobs and today’s Halifax survey showing a 2% fall in prices during June.

This is hitting consumer confidence as the impact of the credit crunch spreads to the wider economy.